Liability Issues for Compliance Officers IIB Annual Seminar on Risk Management and Regulatory/Compliance Issues Affecting International Banks

Transcription

1 Liability Issues for Compliance Officers IIB Annual Seminar on Risk Management and Regulatory/Compliance Issues Affecting International Banks Carol M. Beaumier EVP & Managing Director Protiviti October 28, Protiviti Inc. This deck was used as part of an oral presentation and is an incomplete record of the presentation without the accompanying comments.

2 AGENDA The Global Landscape Industry Outlook The New Paradigm? This document was used as part of an oral presentation and without the accompanying oral comments is an incomplete record of the presentation. The materials, ideas and concepts included herein should not be considered legal advice.

3 THE GLOBAL LANDSCAPE Personal accountability for compliance officers exists as a concept in a number of jurisdictions across the globe and in many cases, has been a long standing option. Examples: In Germany, case law has determined that anyone, regardless of title, may be held liable for wrongdoing if their job is to prevent crimes from happening. In Spain, a civil and criminal liability regime does apply to compliance functions. In the Netherlands, both companies and individuals can be held liable, but liability usually falls on executive management and not compliance officers. In Hong Kong, the Hong Kong Ordinance makes provision for personal liability. 2

4 INDUSTRY OUTLOOK Over the next 12 months, personal liability will be...* 15% 2% 44% 39% Slightly less than today The same as today Slightly more than today Significantly more than today * Cost of Compliance 2015, Thomson Reuters, May 13,

5 THE NEW PARADIGM? Senior Managers and Certification Regime ( SM & CR ) A shift away from corporate responsibility towards individual accountability Imposes a statutory duty to take reasonable steps to prevent regulatory breaches Applies to all banks operating in the UK Effective as of March 7, 2016 The Senior Managers Regime is UK regulators flagship response to the public outrage that bank bosses were not held personally responsible for the heavy losses of the financial crisis and ensuing multibillion-pound bailouts. Financial Times September 27,

6 KEY COMPONENTS Senior Managers Regime Certification Regime New Conduct Rules Criminal Offense 5

7 SENIOR MANAGERS REGIME Applies to Senior Managers (including, but not limited to board members, executive committee members, heads of business, decision-makers and individuals responsible for important business, control or conduct-focused functions) approved by the regulators. Need to develop Statements of Responsibilities and Responsibilities Maps to prove there are no gaps or excessive overlaps in responsibilities o o Senior Managers will need to be made aware of and formally accept their responsibilities If a Senior Manager relinquishes his/her responsibilities, he/she will need to prepare a handover certificate explaining how the responsibilities have been carried out and identifying any issues of which the person taking over should be aware. 6

8 CERTIFICATION REGIME Firms will need to certify annually that employees are fit and proper to perform significant harm functions. Individuals performing these functions will no longer be subject to approval by the regulators. A Senior Manager within the firm must assume responsibility for the assessment and certification process. 7

9 CONDUCT Introduces a new framework of behavioral standards against which individual conduct will be judged o Some which will apply to all but purely ancillary employees and not just to Senior Managers Regulators will be able to take enforcement actions (including fines and suspensions) against those who do not comply Firms are obligated to: o Provide tailored training to Senior Managers and Certified persons o Notify the regulators of breaches 8

10 CRIMINAL OFFENSE Introduces a new criminal offense of reckless misconduct leading to the insolvency of a bank A Senior Manager found guilty of reckless misconduct is liable to an unlimited fine and/or up to seven years in prison 9

11 A LAST MINUTE CONCESSION OR NOT On October 15, 2015, the UK Treasury announced that it was scrapping the reverse burden of proof (guilty until proven innocent) standard in the SM & CR. Ostensibly, this seems to be a positive development for the industry, but... This change is one of process, not substance. The focus for firms and individuals should be complying with both the letter and spirit of rules rather than considering the way to circumvent them. Andrew Bailey Deputy Governor of the Bank of England and CEO of the PRA as quoted by Reuters, October 15,

12 POSSIBLE IMPLICATIONS OF THE SM & CR Difficulty recruiting Senior Managers More finger-pointing and whistleblowing Need to revise employment contracts Challenges balancing required handovers with severance demands Greater administrative burden placed on firms (specifically, Compliance functions) Appeal to non-uk regulators 11

13 CONTACT INFORMATION Carol Beaumier Executive Vice President & Managing Director Phone: Powerful Insights. Proven Delivery. 12

14 REFERENCES HM Treasury. Senior Managers and Certification Regime, October 2015 The UK s new regulatory regime for individuals Part 1: How does it apply to UK branches of E.E.A and non-e.e.a banks and PRA-designated investment firms?, Mayer Brown, September 2015 Financial Conduct Authority, Strengthening Accountability in Banking, July 20, 2015 New Senior Managers and Certification Regime: Summary of key points, Collyer Bristow, September 9, 2015 Treasury u-turns on senior manager accountability, Walker, Peter, Financial Times, October 15, 2015 UK softens demands on senior bankers, widens scope of regulation, Reuters, October 15, 2015 Cost of Compliance 2015, English, Stacey and Hammond, Susannah, Thomson Reuters 13

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